Ever wonder what debt collectors do with the lawsuits they receive for violations of the Fair Debt Collection Practices Act? Look no further than "Alright, You've Been Sued, Now What Do You Do?," a creditor's guide to responding to FDCPA complaints. The undated posting, written by Mark Ellis of the Sacramento, CA law firm Ellis Law Group, LLP, gives tips to debt collectors ranging from setting procedures on interaction to deciding whether to tell insurance companies about a suit.

The article proves enlightening insofar as it gives consumer advocates a glimpse into the bargaining mindset of debt collectors. Here are some items from the article which it may be helpful to know are in the forefront of a debt collector's mind during settlement:

• If at all possible, any threat of a possible lawsuit or demand should be forwarded to, and handled by, one person or department within your organization. For example, this person may be designated as the “risk manager” in your organization . . . If possible, your “risk manager” should normally handle a call from an attorney.

• The payment of a pre-litigation “nuisance” settlement of, say, $1,000 to $2,000, without going through the hassle of the reporting process and creating a claims history may justify not reporting a pre-litigation threat or demand.

• However, the company and its risk manager should also keep in mind that failed “in-house” attempts at resolution of a lawsuit may have coverage implications and lead to denial of coverage for a particular claim. Most insurance policies carry a standard condition that the insured is not to attempt to negotiate, or attempt to settle, a lawsuit on its own. The attempt to do so can lead to denial of coverage.

• If a court believes you have altered or destroyed evidence, it can issue sanctions up to and including striking your answer or summarily entering judgment against you.

• The truth is that most claims settle for $5,000 or less, and many are settled for less than $2,500. Given that most insurance deductibles that I see are between $5,000 and $25,000, a decision to attempt a “nuisance” settlement that saves you some money off your deductible is an understandable business decision.

• [P]lan that it will cost at least $3,500 to $5,000 to attempt to get a simple lawsuit summarily dismissed.

There is also a full section on trials. Be aware of all this when negotiating an FDCPA claim: on the mind of the debt collectors are their records of the facts, their own standard procedures, their insurance deductible, and the potential cost of litigation.

Last night's 60 Minutes featured a 13-minute expose on the unbelievable frequency of mistakes made by the Big Three credit reporting agencies (Equifax, Experian, and TransUnion), and the utter hopelessness faced by affected folks who try to correct them.

"Whether we like it or not, we live in an age where much of what goes on in our daily lives in monitored, collected, and sold to interested parties," the report begins. The results of the investigation are unsurprising to those with intimate knowledge of the credit reporting industry: nearly 40 million Americans have a mistake on their credit report, and 20 million of those with mistakes are measurably affected by them. What's most alarming is that these mistakes are often impossible to correct.

Take the "dispute process" required by the Fair Credit Reporting Act, a federal law which supposes to provide a modicum of regulatory oversight to an otherwise unregulated industry, as the consumate example of the industry's failure to accurately represent the people on whom it distributes information for money. When a person disputes information on their credit report, the law requires credit reporting agencies to "conduct a reasonable reinvestigation to determine whether the dispute information is inaccurate . . . ." As 60 Minutes discovered, the credit reporting agencies do not actually investigate at all-- the expose features this exchange with a team of former Experian investigators:

"If somebody had a problem with their credit report, they would send in a complaint and it would end up with you?" "Yeah. Oh yeah."

"So how many of these did you have to do a day?" "Ninety."

"Did you consider yourselves investigators?"

"No." "No not at all."

"Did you have any way to investigate these claims?"

"No." "No we didn't. You can't call the person..."

"You can't pick up the phone and call them?" "No." "Did you have phones?"

"No."

"Could you email them?" "No." "Did you have the authority to say 'wait a minute, I'm looking at somebody's file and somebody made a mistake, this person doesn't owe this money?'" "We didn't have that power."

In fact, all the "investigators" do is read a dispute, reduce it to a 2-word code like 'never late' or 'wrong person,' and send the two words back to the creditor without documentation. Seems insufficient? Says attorney Leonard Bennett, a consumer advocate from Virginia: "I can say this without qualification: the dispute procedures uniformly used by the credit reporting agencies completely fail to comply with the Fair Credit Reporting Act. Courts have found that, the Federal Trade Commission has found that. It's not even a close call."

It is common knowledge that debt collection agencies can be, charitably, difficult to deal with. Those unlucky enough to find themselves targets of collection often have horror stories of their own to relate. CNN Money took a look today at some of the more egregiously illegal collection tactics used by these agencies:

Threatening to take away children: Last week, the Federal Trade Commission shut down a Texas-based debt collector, Goldman Schwartz, for using deceptive and abusive scare tactics to force people to pay their payday loan debts. Among the alleged offenses:collectors called consumers incessantly, saying "we can take you to jail" or "we'll send the sheriff's department to your job and take care of this the hard way," even though they had no legal basis to do so.

Posing as a law firm: To scare consumers into paying, Goldman Schwartz also allegedly posed as a law firm or claimed to work with law enforcement authorities -- even charging unauthorized attorney's fees that it referred to as "juice."

Threatening to dig up dead bodies: Another collection agency, Rumson, Bolling & Associates, was fined more than $700,000 last month for taking harassment to a whole new level. One of the worst offenses listed in the FTC's lawsuit: collectors allegedly threatened to dig up the bodies of debtors' deceased children and hang them from a tree or drop them outside their door if they failed to pay their funeral bills. The defendant's attorney, Christopher Pitet, said the company's owners did their best to ensure collectors complied with the law -- so if any wrongdoing was done, it was done by employees and was against company policy.Promising to hurt pets: The harassment didn't stop at dead bodies, according to the FTC. Collectors at Rumson, Bolling & Associates also allegedly threatened to kill a debtor's dog. Specifically, collectors told a woman they would have her dog "arrested ... shoot him up and ... eat him," before sending the police to her house to arrest her, the FTC claimed.

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